On April 1, 2015, the United States Securities and Exchange Commission (SEC) announced an enforcement action—the first of its kind—against KBR, Inc., for requiring employees involved in internal investigations to maintain confidentiality, which is in violation of the SEC's whistleblower rules. The SEC found KBR's requirement that employees involved in internal investigations sign and abide by confidentiality statements with language cautioning that they could face discipline if they discussed the matters with outside parties without the prior approval of KBR's legal department violated SEC Rule 21F-17, which states that:
- No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with information covered by § 240.21F-4(b)(4)(i) and § 240.21F-4(b)(4)(ii) of this chapter related to the legal representation of a client) with respect to such communications.
- If you are a director, officer, member, agent, or employee of an entity that has counsel, and you have initiated communication with the Commission relating to a possible securities law violation, the staff is authorized to communicate directly with you regarding the possible securities law violation without seeking the consent of the entity's counsel.
17 C.F.R. § 240.21F-17.
As a result of the enforcement action, KBR agreed to pay a $130,000 penalty and amended its confidentiality statement to clarify that employees are free to report possible violations to the SEC and other federal agencies without prior approval from KBR and without fear of retaliation.
In taking such action, the SEC joins the National Labor Relations Board (NLRB) and the Equal Employment Opportunity Commission (EEOC) in prohibiting employers from imposing confidentiality requirements that preclude employees from discussing and/or participating in ongoing investigations. For example, under current National Labor Relations Act (NLRA) guidance, employees have a right to discuss terms and conditions of employment with one another inclusive of the substance of investigations in which they are participating. Current EEOC guidance prohibits entities from restricting former employees from contacting the EEOC about perceived violations.
Employers should consider reviewing and revising policies or practices requiring confidentiality in internal investigations, as well as revising clauses in confidentiality and/or severance agreements, to ensure compliance with SEC, NLRA and EEOC guidance.